New Growth Theory, Globalization, and the Economic Prosperity of U.S. Cities Barry Bluestone Dean, School of Social Science, Urban Affairs, and Public.

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Presentation on theme: "New Growth Theory, Globalization, and the Economic Prosperity of U.S. Cities Barry Bluestone Dean, School of Social Science, Urban Affairs, and Public."— Presentation transcript:

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New Growth Theory, Globalization, and the Economic Prosperity of U.S. Cities Barry Bluestone Dean, School of Social Science, Urban Affairs, and Public Policy Northeastern University PPS G225 OPEN CLASSROOM Economic Growth with Equity February 24, 2009

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Neoclassical Theory  Dale Jorgenson: Growth in capital input (tangible assets like factories, machinery) is the most important source of economic growth Growth in labor input is the next most important source of economic growth Technological progress is the least important Law of Diminishing Returns dominates

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Evidence for New Growth Theory  Great Britain vs. U.S. (1870-1929) In 1870, U.S. per capita income only ¾ of Great Britain In both countries, education per worker increased about the same and savings rates were comparable But by 1929, U.S. income levels were 30% higher than in Great Britain Why?

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U.S. vs. U.K. “Investments”  British investors took their saving and invested abroad  U.S. became technology innovator with Henry Ford, Thomas Edison, the Wright Brothers … and Americans invested at home  By the 1920s, these technological advances provided a booming economy in the U.S.

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The Key to 21 st Century Prosperity?  Need to be a leader in technological innovation in order to survive and prosper in a global economy where workers and goods can move nearly at the speed of sound …. and information moves nearly at the speed of light.

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The 21 st Century City  Centers for Business Services Face-to-face contact opportunities supplemented by high-speed communications attract business  Centers for Consumption Cities that are good places to live with lots of cultural amenities and recreational opportunities attract workers

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A Note of Caution: Cost of Living  Those metro areas that have attracted creative industries and creative workers are now in danger of “pricing themselves out of the market”  The high cost of living in many of these cities (Boston, San Francisco, San Jose) is beginning to discourage working families and businesses from settling in these regions

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CURP Study of Housing, Employment and Population  Metro areas with highest cost of living are suffering slow employment growth or outright job loss  Metro areas with the highest cost of living are suffering net out-migration of domestic population  Paradox: The shortage of housing supply can lead to a future sharp decline in housing prices … as jobs and workers leave the state

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Greater Boston MSA –6.0% X Of the 10 most expensive MSAs in the nation, All 10 had net outmigration between 2000 & 2006

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Projected Percent Change in Households by Age Cohort, 2006-2017 The Future Demographics of Massachusetts Source: U.S. Census Demographic Projections Of a net increase of 193,500 households, 244,600 are projected to be age 55 +

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Conclusion  A new hierarchy of metro areas is arising as a result of technological innovation and globalization  Urban prosperity depends to a great extent on being a leader in technology and a transportation hub  But, those cities where the cost of living rises sharply are in danger of pricing themselves out of the market for new firms and working families